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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI A K GARODIA
Date of hearing : 17.12.2019 Date of Pronouncement : 03.01.2020 O R D E R Per N.V. Vasudevan, Vice President
This is an appeal by the Assessee against the order dated 27.9.2019 of CIT(Appeals)-3, Bengaluru, relating to assessment year 2016-17.
The only issue that needs adjudication in this appeal is as to whether the revenue authorities were justified in taxing gain on relinquishment of rights under an agreement to purchase undivided share of land and construction agreement, as income under the head “Income from business” as against the claim of the Assessee that the gain in question was to be assessed under the had “capital gain”.
3. The Assessee is an individual. One M/s. Beau Jhelum Traders & Developers (P) Ltd., [hereinafter referred to as “Developer”] were in the business of property development/construction. They entered into a registered Joint Development Agreement dated 9.11.2009 with owners of property bearing Municipal Door No.9/1, Residency Road, Richmond Circle, Bangalore, [hereinafter referred to as “property”] for putting up constructions thereon in the form of office space. The Developer together with the owners of the property entered into a registered Agreement to sell dated 2.5.2012 whereby he agreed to sell 1746.30 Sq.ft. undivided share of land of property for a consideration of Rs.5 Crores. The Assessee and the Developer also agreed that the purpose of acquiring the undivided share of land of the property was to appoint the developer to construct and deliver to the Assessee built up area of 11325 Sq.ft. in the 15th floor of the building(named as “909 Lavelle”) that was proposed to be constructed by the Developer over the property together with 9 car parks (hereinafter referred to as “built up area”). The Assessee and the developer entered into an construction agreement on the very same day i.e., 2.5.2012 whereby the cost of construction of the built up area was agreed at a sum of Rs.13,25,13,750/-. The Assessee had paid a sum of Rs.3 crores as advance under the Agreement to sell undivided share of land and another sum of Rs. 2,64,54,130/- as advance under the Construction Agreement.
Thereafter the Assessee made further payment of Rs.6,40,00,000 to the Developer in the following manner:-
2013-14 55,00,000 2013-14 20,00,000 2013-14 35,00,000 2013-14 35,00,000 2013-14 20,00,000 2014-15 1,50,00,000 2014-15 1,25,00,000 2014-15 60,00,000 2014-15 40,00,000 2014-15 1,00,00,000 5. Thus the Assessee had made payment of Rs.3 Crores + Rs.2,47,54,130 + Rs.6,40,00,000 in all a sum of Rs. 11,87,54,310 to the Developer towards cost of acquiring undivided share of land of the property and the built up space in the proposed development to be carried out by the Developer.
On 5.1.2016, the Assessee, owners of the property and the Developer entered into a Memorandum of understanding whereby the agreement to sell between the owners of the property, Developer and the Assessee dated 2.5.2012 and the Construction Agreement dated 2.5.2012 between the Assessee and the Developer were cancelled. The Assessee received a sum of Rs.13,87,54,130/- in full and final settlement from the Developer and relinquished all his rights under the agreement to sell between the owners of the property, Developer and the Assessee dated 2.5.2012 and the Construction Agreement dated 2.5.2012 between the Assessee and the Developer. Thus against the sum of Rs.11,87,545,310 paid by the Assessee to the Developer under the aforesaid two agreements both dated 2.5.2012, the Assessee received a sum of Rs.13,87,54,130/-. The Assessee thus received a sum of Rs.2 crores in excess of what he paid under the aforesaid agreements. On 3.2.2016, a deed of cancellation of Agreement to sell was executed and duly registered with a view to nullify the effect of the registered agreement to sell undivided share of land dated 2.5.2012.
In the return of income filed for AY-2016-17, the Assessee declared the gain on surrendering his rights under agreement to sell between the owners of the property, Developer and the Assessee dated 2.5.2012 and the Construction Agreement dated 2.5.2012 between the Assessee and the Developer, as giving raise to Long Term Capital Gain (LTCG). The Computation of LTCG as made by the Assessee in the return of income was as follows:-
Long term capital gain
02 May 12 Date of acquisition Date of transfer 05 Jan 16 Sale consideration 13,87,54,130 Acquisition details Financial Cost Index Cost Year Cost-30021920*1081/852 2012-13 3,00,21,920 3,80,91,192 Cost-24754130*1081/852 2012-13 2,47,54,130 3,14,07,529 Total 6,94,98,721 Improvement details Cost 5500000*1081/939 2013-14 55,00,000 63,31,736 Cost 2000000*1081/939 2013-14 20,00,000 23,02,449 Cost 3500000*1081/939 2013-14 35,00,000 40,29,286 Cost 3500000*1081/939 2013-14 35,00,000 40,29,286 Cost 2000000*1081/939 2013-14 20,00,000 23,02,449 Cost 15000000*1081/1024 2014-15 1,50,00,000 1,58,34,961 Cost 12500000*1081/1024 2014-15 1,25,00,000 1,31,95,801 Cost 6000000*1081/1024 2014-15 60,00,000 63,33,984 Cost 4000000*1081/1024 2014-15 40,00,000 42,22,656 Cost 12500000*1081/1024 2014-15 1,00,00,000 1,05,56,641 Total 20,00,000 6,91,39,249 Taxable Capital gain 35,00,000 1,16,160
According to the AO, the Assessee did not acquire the undivided share of land or the built up area and therefore there was no capital asset that was transferred by the Assessee and hence the gain in question cannot be considered as chargeable to tax u/s.45 of the Income Tax Act, 1961 (Act) under the head “Capital Gain” but had to be considered as giving rise to income chargeable to tax u/s.28 of the Act, under the head “Income from Business”.
In response to the proposal of the AO, the Assessee vide its reply dated 12.12.2018 submitted that the Assessee was neither a trader purchasing and selling properties nor was he carrying on any real estate business. The purpose of bargaining for purchase of the undivided share of the property and the built up area was as an investment to let out the same and earn rental income. Since there was delay in completion of the project and the property was not found suitable to the needs of the Assessee due to unsatisfactory facility provided in the project and the project not being in compliance with Vasthu Sastra Specifications. The AO however was of the view that neither in the MOU dated 5.1.2016 nor in the cancellation deed dated 5.1.2016 was there any mention about the reasons for the Assessee not completing the process of acquiring the undivided share of land of the property and the built up area. The AO proceeded to treat the gain in question of Rs.2 crores as income under the head “Income from businesss” and not income under the head “Capital Gain”. The following were the relevant observations of the AO:
“ It is evident from the submission that on account of delay in completion of project and the project was not suitable to his needs as it had internal inconsistencies, he was not satisfactory and due to 'Vasthu reasons' he was advised to exit from the investment. To exit from the investment, he might have demanded compensation from the builder and on account of such mutual consent he was paid compensation of Rs. 2,00,00,000/- over and above the investment made. It was his displeasure on the construction quality, he had signed the deed of cancellation dated: 03.02.2016 and exit from the construction. The deed of cancellation given by the assessee is examined and noticed that it was registered in SRO Shivaji nagar vide document no. 5175/15- 16 dated: 03.02.2016. It did not talk about the MOU dated: 05.01.2016 entered between the assessee and the builder (One month prior to the date of registered cancellation deed). The deed of cancellation was silent about the MOU. The deed of cancellation merely talks about the registered agreement dated: 02.05.2012 (construction agreement) and exit of Sri Dev Kumar Roy from the transaction. The MOU was an out of court settlement for a sum of Rs. 13,87,54,130/- where the assessee got a windfall gain of Rs. 2,00,00,000/-. In this transaction, there was neither cost of acquisition nor cost of improvement to claim indexed cost of acquisition and indexed cost of improvement. Under no circumstances this transaction can be considered for long term capital gain. Accordingly, as proposed in showcause notice, this amount of Rs. 2,00,00,000/- is added under the head business as adventure in nature of trade.”
Aggrieved by the order of the AO, the Assessee preferred appeal before CIT(A). The Assessee submitted before CIT(A) that under Sec.45 of the Act, any capital gain arising from transfer of a capital asset is chargeable to tax under the head “Capital Gain”. The Assessee pointed out that the Act defines “Capital Asset” u/s.2(14) of the Act to mean “property of any kind held by an Assessee”. There are certain items excluded in the said definition and none of those exclusions are applicable in the case of the Assessee. According to the Assessee, the rights acquired by the Assessee under the agreement to sell between the owners of the property, Developer and the Assessee dated 2.5.2012 and the Construction Agreement dated 2.5.2012 between the Assessee and the Developer, was a right to enforce the agreement by specific performance and other remedies and that right which is in the nature of a capital asset was relinquished and therefore the gain on such relinquishment has to be regarded only as giving raise to capital gain not income from business.
In this regard the Assessee placed reliance on decision of Hon’ble Karnataka High Court in the case of H. Anil Kumar (2011) 242 CTR 537 (Karnataka) wherein the facts of the case were that, Assessee had entered into an agreement to purchase immovable property and paid Rs. 1,00,000 as advance amount. He filed a suit for specific performance of the agreement of sale. The Assessee then withdrew the suit for specific performance in lieu of a payment of Rs. 7,50,000. The revenue however brought to tax the gain on relinquishment of right under the agreement for sale under the head “Capital gain”. On appeal by the Assessee, the Hon’ble Karnataka High Court upheld the action of the revenue and held that the word ‘capital asset’ means property of any kind held by the assessee which does not necessarily be confined to an immovable property. Similarly, when the word ‘transfer’ in relation to a capital asset though includes sale, exchange or relinquishment of the asset, the said asset need not necessarily be an immovable property. The right to obtain a conveyance of immovable property falls within the expression ‘property of any kind’ used in s. 2(14) and consequently it is a capital asset. It is because the expression ‘property of any kind’ is of wide import. When this expression is read along with the expression defined in s. 2(47)(ii) i.e., ‘extinguishment of any rights therein’, the giving up of a right of specific performance by the assessee to get conveyance of immovable property in lieu of receiving consideration, results in the extinguishment of the right in property, thereby attracting the rigor of s. 2(14) r/w s. 2(47). Giving up of a right to claim specific performance by conveyance in respect to an immovable property, amounts to relinquishment of the capital asset. Therefore, there was a transfer of capital asset within the meaning of the Act. The payment of consideration under the agreement of sale, for transfer of a capital asset, is the cost of acquisition of the capital asset. Therefore, in lieu of giving up the said right, any amount received, constitutes capital gain and it is exigible to tax. However, as is clear from s. 48, before the income chargeable under the head capital gains is computed, the deductions set out in s. 48 has to be given to the assessee. It is only the amount thus arrived at, after such deductions under s. 48, would be the income chargeable under the heading capital gains. The Hon’ble Karnataka High Court in the aforesaid decision placed reliance on similar decisions rendered by several Hon’ble High Courts in the case of CIT vs. Tata Services Ltd. (1980) 122 ITR 594 (Bom), CIT vs. Vijay Flexible Containers (1990) 186 ITR 693 (Bom), CIT vs. Abbasbhoy A. Dehgamwalla & Ors. (1992) 195 ITR 28 (Bom), Rustom Spinners Ltd. vs. CIT (1992) 198 ITR 351 (Guj), CIT vs. Smt. Laxmidevi Ratani & Ors. (2008) 296 ITR 363 (MP) and CIT vs. J. Dalmia (1984) 149 ITR 215 (Del).
The Assessee also contended that the single or isolated transaction of relinquishment of right under an agreement to acquire immovable property cannot be regarded as adventure in the nature of trade. In this regard the Assessee pointed out before CIT(A) that it had never indulged in any transactions in the past and the intention at the time of acquisition of the property in question was to earn rental income only. The Assessee submitted that he owned a property in United Kingdom and the rental income from the same is offered to tax under the head income from House Property and another property at Bangalore and income from the same is also offered to tax under the head Income from House Property.
The CIT(A) however confirmed the order of the AO for the following reasons:-
“4.2 The submissions of the appellant have duly been considered. The only issue which needs to be examined is whether the transaction had resulted into income which could be taxed as capital gains or as adventure in nature of trade. A perusal of agreement to sell dated 02.05.2012 does not through much light on the intention of purchasing the said immovable property. However the MOU dt 05.01.2016 and deed of cancellation of construction agreement dt 03.02.2016 do reveal the intention with which the appellant had entered into this transaction. The relevant clause of the MOU is reproduced as follows:
"2. The Consideration of Rs. 13,87,54,130/- shall be paid within a period of 15 months form the date of this MOU.
For the payment of the above amount of Rs. 13,87.54,130/- the Purchaser shall be entitled to an interest of 6% per annum, payable quarterly by the Seller/Developer." 4.3 The relevant clause of the deed of cancellation of the construction agreement is reproduced as follows: "2. Subsequent to the cancellation of the aforesaid Construction Agreement mentioned supra the Agreement Holder herein, has requested the Developer/Promoter to convert the all the amounts paid till this day, towards part Sale Consideration for the purchase of said Schedule B Property under the Construction Agreement on 02.05.2012, into a Business Loan in favour of the Developer/Promoter for their business usage." 4.4 A perusal of the above clauses shows that the appellant had not received back the sale consideration of Rs. 13,87,54,130/- immediately but the appellant had agreed to treat the same as a business loan in favor of the developer/promoter for their business usage and the appellant was entitled for interest at the rate of 6% per annum on the said amount. This aspect throws light on the intention of the appellant that he had entered into transaction not with the purpose of owning a property and then earning rental from the same but the purpose was to enter into a business transaction with the builder and earn profits from such transaction. However the transaction had been given a color of surrender of rights in a capital asset so as to have the advantage of paying almost negligible taxes on the gains arising out of such transactions. The transaction is thus in fact a business transaction and the same had rightly been treated by the AO as adventure in nature of trade. The decisions relied upon by the appellant are found to be rendered on different facts and as such the same are not relevant. ,Considering above the grounds of appeal
of the appellant are dismissed.”
14. Aggrieved by the order of CIT(Appeals), the Assessee is in appeal before the Tribunal. We have heard the submissions of the learned counsel for the Assessee who apart from reiterating submissions made before the revenue authorities also placed reliance on decision of Hon’ble Gujarat High Court in the case of Pr.CIT Vs. Bhanuprasad D.Trivedi (HUF) (2017) 87 taxmann.com 137(Guj.) SLP dismissed by Hon’ble Supreme Court reported in (2018) 95 taxmann.com 19 (SC) wherein it was held that to decide the question whether income from sale of shares has to be assessed as “Income from Business” or “Capital Gain”, the intention at the time of purchase is very material. The learned counsel for the Assessee submitted that the Assessee had no intention of doing any business and earn income at the time when he bargained to purchase the property in question and therefore the gain in question has to be regarded only as income chargeable to tax under the head “Capital Gain”. He also highlighted the fact that the CIT(A) has sustained the order of the AO on a different basis viz., on the basis that in the deed of cancellation there was a clause that if the consideration is not paid as agreed there could be incidence of interest payable on the unpaid money which will be treated as business loan by the Assessee to the Developer. According to him, this clause was only a default clause for protecting the interest of the Assessee and cannot give the transaction colour of an adventure in the nature of trade.
The learned DR reiterated the stand of the revenue that there was no property that was in existence when the Assessee relinquished his rights under the Agreements to sell and construction agreement and that decision relied upon by the Hon’ble Karnataka High Court in the case of H.Anil Kumar (supra) was not rendered in the context of relinquishment of right under an agreement for sale and construction agreement and therefore cannot be applied to the facts of the present case.
We have given a very careful consideration to the rival submissions. Section 2(13) of the Act defines ‘business' and it reads as under : - ‘Business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.
Under the Act, the term ‘business' has been defined in an inclusive manner and not in an exhaustive manner as may be seen from the definition in section 2(13) which defines business to include any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture. Likewise, profession has also been defined in section 2(36) to include vocation. Thus the definitions being inclusive in nature, should be construed as being extensive and not limited in scope to only that which is specified in or by the words of the definition. The definition of business includes within its scope specifically and explicitly every adventure in the nature of trade, commerce or manufacture. Even an isolated transaction may constitute an adventure in the nature of trade and would be liable to be construed as business carried on. To constitute business or an adventure in the nature of trade it is not, therefore, essential that in every case there must be a series of transactions all motivated by commercial and profit making considerations nor is it essential that the transactions must fructify and materialise in every case into a full fledged business through the running of an establishment for carrying on business or industry.
The transaction of surrender of rights in agreement in the present case is a single isolated transaction and whether it can be regarded as Adventure in the nature of trade so as to characterize the income received on surrender of rights under an agreement as giving raise to “Income from Business” is the question for our determination. In the case of G. Venkataswami Naidu (supra), the Hon’ble Supreme Court explained as to when a single of isolated transaction can be regarded as an Adventure in the nature of trade in the following words:-
"it is impossible to evolve any formula which can be applied in determining the character of isolated transaction which come before the Courts in tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the border line that cause difficulty. If a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant. Was the purchaser a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it ? Affirmative answers to these questions may furnish relevant data for determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold? If the commodity purchased is generally the subject-matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily resaleable ? What were the incidents associated with the purchase and resale? Were they similar to the operations usually associated with trade or business? Are the transactions of purchase and sale repeated ? In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride of possession come into picture? A person may purchase a piece of art, hold it for some time and if a profitable offer is received may sell it. During the time that the purchaser had its possession he may be able to claim pride of possession and aesthetic satisfaction; and if such a claim is upheld that would be a factor against the contention that the transaction is in the nature of trade. These and other considerations are set out and discussed in judicial decisions which deal with the character of transactions alleged to be in the nature of trade. In considering these decisions it would be necessary to remember that they do not purport to lay down any general or universal test. The presence of all the relevant circumstances mentioned in any of them may help the Court to draw a similar inference ; but it is not a matter of merely counting the number of facts and circumstances pro and con ; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction; and so, though we may attempt to derive some assistance from decisions bearing on this point, we cannot seek to deduce any rule from them and mechanically apply it to the facts before us. In this connection it would be relevant to refer to another test which is sometimes applied in determining the character of the transaction. Was the purchase made with the intention to resell it at a profit? It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. There is no middle course and no half-way house. This statement may be broadly true ; and so some judicial decisions apply the test of the initial intention to resell in distinguishing adventures in the nature of trade from transactions of investment. Even in the application of this test, distinction will have to be made between initial intention to resell at a profit which is present but not dominant or sole; in other words, cases do often arise where the purchaser may be willing and may intend to sell the property purchased at profit, but he would also intend and be willing to hold and enjoy it if a really high price is not offered. The intention to resell may in such cases be coupled with the intention to hold the property. Cases may, however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive ; and it is conceivable that, on considering all the facts and circumstances in the case, the Court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. We thus come back to the same position and that is that the decision about the character of a transaction in the context cannot be based solely on the application of any abstract rule, principle or test and must in every case depend upon all the relevant facts and circumstances." 19. The above tests laid down by the Hon’ble Supreme Court still hold good in deciding cases where the question arises for consideration as to whether a single or isolated transaction can be regarded as an Adventure in the nature of trade so as to characterize the income as business income.
In the present case what we find is that as per the construction agreement between Assessee and the developer, the Construction has to be completed within a period of 36 months with a grace period of 6 months. The Construction Agreement is dated 2.5.2012. Agreements for sale of undivided share of land is also dated 2.5.2012. The MOU by which the developer and the Assessee agreed to treat the Agreements for sale dated 2.5.2012 and the Construction Agreement dated 2.5.2012 is dated 5.1.2016. The MOU is silent as to the reason why the Assessee wants to relinquish his rights under the Agreements for sale of undivided share of land and the Construction Agreement. The Assessee in his letter to the AO dated 18.12.2018 has submitted that he wanted to rescind the agreement with the developer for the reason that the project was getting delayed and not suitable to needs of Assessee, certain internal inconsistencies, facilities provided and proposed to be provided was not satisfactory and bound to cause inconvenience to tenants and there were some vasthu issues also. The stand taken by the Assessee was not disbelieved by the AO and he proceeded to hold that the MOU dated 5.1.2016 whereby the Assessee and the Developer agreed to rescind the agreement has not been referred to in the subsequent registered cancellation deed dated 3.2.2016. As we have already observed there is no reference to the MOU dated 5.1.2016 nor is there any reference to the reason as to why the Assessee and the Developer seek to enter into a cancellation agreement. Nevertheless, the fact remains that the plea of the Assessee in this regard has not been doubted by the Revenue authorities. The CIT(A) proceeded on the basis of a term in the cancellation deed which provided for commercial rate of interest. From existence of such a term in the default clause it cannot be said that the Assessee entered into an adventure in the nature of trade in the matter of purchase of undivided share of land of the property and acquiring built up area in a proposed office complex. The Assessee is not in the business of dealing in real estate. The Assessee’s claim that there are no instances of similar transaction in the past is not disputed or contradicted by any material brought on record. As submitted by the learned counsel for the Assessee, intention at the time of acquisition of the property will be a guiding factor. There is no material brought on record to show what the intention of the Assessee was at the time when he acquired the property. The Assessee claims that his intention was to hold the property as investments and to earn rental income. The Revenue says the circumstances show that the intention was to indulge in an adventure in the nature of trade. One of the test laid down by the Hon’ble Supreme Court in the case of G. Venkataswami Naidu (supra) is to see whether the Assessee as a purchaser was a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it ?
The Answer to the above question is in the negative in the present case, as the Assessee was not a trader in acquiring rights under an agreement and relinquishing the same. Another test laid down by the Hon’ble Supreme Court in the decision of G. Venkataswami Naidu (supra) is to see as to, what is the nature of the commodity purchased and resold and in what quantity was it purchased and resold? If the commodity purchased is generally the subject-matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily resaleable ? Applying the aforesaid test, we are of the view that relinquishment of rights under an Agreement to acquire property is not a commonly subject matter of trade. We are of the view that no other facts or circumstances are brought on record to show that the Assessee indulged in an Adventure in the nature of trade when he relinquished his rights under an agreement.
Therefore the right acquired under the Agreement by the Assessee has to be regarded as “Capital Asset”. The decision of the Hon’ble Karnataka High Court in the case of H. AnilKumar (supra) supports the plea of the Assessee. The Hon’ble High Court in the said decision held that the right to obtain a conveyance of immovable property falls within the expression ‘property of any kind’ used in s. 2(14) and consequently it is a capital asset. It is because the expression ‘property of any kind’ is of wide import. The Hon’ble Court held that when this expression is read along with the expression defined in s. 2(47)(ii) i.e., ‘extinguishment of any rights therein’, the giving up of a right of specific performance by the assessee to get conveyance of immovable property in lieu of receiving consideration, results in the extinguishment of the right in property, thereby attracting the rigor of s. 2(14) r.w.s. 2(47). Giving up of a right to claim specific performance by conveyance in respect to an immovable property, amounts to relinquishment of the capital asset. Therefore, there was a transfer of capital asset within the meaning of the Act. The payment of consideration under the agreement of sale, for transfer of a capital asset, is the cost of acquisition of the capital asset. Therefore, in lieu of giving up the said right, any amount received, constitutes capital gain and it is exigible to tax. However, as is clear from s. 48, before the income chargeable under the head capital gains is computed, the deductions set out in s. 48 has to be given to the assessee. It is only the amount thus arrived at, after such deductions under s. 48, would be the income chargeable under the heading capital gains.
Taking into consideration the facts and circumstances of the present case, we are of the view that income from relinquishing rights under an agreement should be assessed under the head income from capital gains. We hold accordingly. We however find that the AO/CIT(A) have not examined the claim of the Assessee under the head “Capital Gain” in accordance with the provisions of Sec.48 of the Act. We therefore remand the question of computation of Capital Gain to the AO after due opportunity of being heard afforded to the Assessee. The Appeal of the Assessee is accordingly treated as allowed for statistical purposes.
In the result, appeal of the Assessee is treated as allowed for statistical purposes.